He told the court that he heard Kepu refer to Mr Palmer as "that Yankee c***''.
Mr Hinton said he told Mr Palmer of the threats as the pair ate lunch in the guard house but did not follow procedure and record the threats on Kepu's file.
"I failed in that procedure,'' he told Corrections' lawyer Anna Longdill.
He told Department of Labour lawyer Shona Carr that Kepu was a "big kid that pushed the boundaries with officers and other prisoners to get his way.''
Earlier, principal Corrections' officer Arul Prakash told the court that he did not advise that Kefu be moved by a team of prison officers in protective gear.
"Otherwise we would be kitting up officers every minute.''
He said Kepu had been accused of stealing biscuits and chips off another prisoner by Mr Palmer who later found a packet of biscuits in Kepu's cell.
Mr Prakash said when he reviewed Kepu's file in light of the incident, he found Kepu had a record for abusing staff and assaulting prisoners.
"When reading his file notes, there was quite a bit which raised an alarm bell.''
He said he re-classified Kepu as a maximum security prisoner which would have seen Kepu moved to Paremoremo.
Under questioning from the prison union Corrections Association lawyer Alison Maelzer, Mr Prakash said he looked at Kepu's file and found he had assaulted prison staff and prisoners in the past.
He also told the court that he could not recall whether Mr Palmer had approached him with concerns about Kepu
He was asked by Coroner Gordon Matenga if, with the benefit of hindsight, he would have done anything differently.
Mr Prakash said: "I don't know, Sir. I don't think so.''
The inquest is set down for three days.
